PhD seminar: Kodjo Adandohoin

Social impact of VAT based tax-transition: The case of Togo

Discussants: Mouhamed Zerbo et Bertrand Laporte

Abstract

Does the tax system of developing countries absorb tax transition reforms based on VAT? Thispaper attempts to answer the question by assessing the distributional and poverty consequencesof VAT based tax-tariff reforms stationed on the case of Togo. Building on a computable generalequilibrium model of tax changes coupled with microsimulation framework, the paper evidencesthat, VAT based tax-tariff reform implemented at the country level is poverty and inequalityincreasing. A point for point increase in VAT to compensate for trade tax revenues with theactual VAT rate of 18% enlarges poverty at this country level. Nonetheless, a low VAT rate of15%, with exemption of agricultural goods from VAT coverage is found to have preferred povertyconsequences. Notwithstanding, the analysis reveals that, non-farmers’ households are the onesthat encounter the greatest increase in poverty incidence following the reform, as compare tofarmers. Yet, disaggregating households according to their residence place also reveals the inter-esting result that, poverty is urban based within the group of farmers, while at the same timeis rural based within the group of non-farmers. The paper also points out that, targeted socialtransfers to households with revenue brought by the reform, may counteract the poverty risingeffect of the reform, while dealing with inequality to some extent.
 
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